ECONOMICS

Detailed explanation-1: -Option A: The finished goods inventory level includes the opening and ending inventory. Thus, the inventory units differ from the sales budget from the production budget. The sales budget considers the market requirements, while the production budget is prepared on the basis of sales and production capacity.

Detailed explanation-2: -The production budget, used by businesses that produce products instead of services, is one part of a firm’s operating budget, and is typically developed after the sales budget. The sales budget drives the production budget because it budgets for the forecasted future sales of the firm’s products.

Detailed explanation-3: -The number of units included in the production budget: may differ from the number of units in the sales budget, depending on ending inventory goals. Budgeted production is calculated by: adding budgeted unit sales to budgeted ending finished goods inventory, and subtracting budgeted beginning finished goods inventory.

Detailed explanation-4: -The production budget is designed by the management to estimate the number of products to be manufactured. It is designed based on the sales forecast and the budgeted amount of finished inventory.